Bad credit can limit financial choices and can result in significantly higher interest rates for any available loan options. In extreme cases, consumers may not be able to obtain traditional credit at all due to past mistakes. Rebuilding a credit history is a lengthy process that requires a good deal of hard work. For most individuals, however, the end result is well worth the effort and can provide the basis for future financial success. These seven steps can provide a framework for the credit repair process.
Consumers are entitled to one free credit report from each of the three primary credit bureaus on an annual basis. Examining these reports for any errors and taking the necessary steps to correct them can provide a solid basis from which to begin the credit repair process. Checking the information on credit reports can also allow consumers to discover cases of identity theft and take steps to resolve these criminal activities more quickly.
For individuals who are currently behind on one or more of their accounts, working out a practical repayment plan with creditors, utility companies and other commercial entities can be a good first step in restoring a positive credit rating and rebuilding credit scores.
Paying bills on time is one of the best indicators for lenders that any past credit difficulties have been resolved and that the consumer is now a good risk in the financial marketplace. Reducing spending on luxuries like dining out or movie nights can provide the necessary funds to pay current bills on or before their due dates.
Don’t Close Credit Accounts
Ironically, closing a credit account with a zero balance can actually hurt credit scores, which are determined in part by comparing the amount of available credit with the amount used by the consumer. Keeping these accounts open and using them only on rare occasions can present a better picture for potential lenders. By maintaining unused credit lines, consumers can actually boost their chances of obtaining loans when they are needed most.
Open a Secured Credit Account
Secured credit cards require a deposit with the bank for the amount of the credit line. This may seem counterintuitive; for individuals with severely damaged credit, however, these arrangements can allow them to maintain a credit account and demonstrate on-time payment to rebuild their credit scores over time.
Too many applications for credit can lower the overall credit score and present a desperate image to prospective lenders. A few exceptions apply. For instance, only the first application for a car loan during a two-week period is usually considered when applying this penalty. Subsequent applications are treated as part of the normal car buying process and do not count against consumers in most cases.
By employing these seven strategies, consumers can effectively and legally repair their credit. With hard work and persistence, even the worst credit scores can be improved. Higher credit scores can allow individuals and families to enjoy greater access to mortgages, car loans and other necessities.